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What Loss Mitigation Is and How It Works in Real Estate

Loss mitigation may help property owners struggling to pay their mortgage loan.

[Updated: Sep 09, 2021 ] Nov 28, 2020 by Liz Brumer

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Loss Mitigation Strategy Loan Forbearance Loan Modification Deed in Lieu of Foreclosure Short Sale
How the Strategy Works Loan payments are reduced or temporarily deferred for a period of time while interest continues to accrue, being added to the total unpaid balance during the forbearance period. Modification that amends or modifies one or more terms of the mortgage loan, which could include the total unpaid balance (UPB), interest rate, maturity date, or interest type. Most lenders attempt a trial modification prior to executing a formal loan modification. A deed in lieu (DIL) transfers ownership from the borrower/property owner to the lender. In exchange, the lender releases the mortgage loan and relinquishes the remaining balance due. This can sometimes be called "cash for keys," and the borrower is compensated for relocation costs in exchange for the deed. The property is sold for less than the balance owed on the mortgage for an amount designated or approved by the lender.
Who It's Right For Borrowers 90 days or less delinquent who temporarily need to suspend, defer, or reduce their monthly payments but believe they will be able to make normal payments again in the future. Borrowers who are 90 days or more delinquent and can no longer can afford the original loan terms but can begin paying a lesser amount immediately. Borrowers who are willing to move out of the home and relinquish their interest in the property and the property has no liens or encumbrances that hinder transfer of title. Borrowers who are willing to move out of their home and relinquish their interest in a property that has negative equity or is underwater.

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